By Charlie Conchie
Pensions giant L&G moved to reassure markets of its cash position today after it was caught up in the economic fallout of the government’s mini-budget last week.
In a statement this morning, the firm said that “extraordinary increases” in interest rates and had “caused challenges” for its pension fund clients and the counterparties of its liability driven investment (LDI) business.
Pension funds deploying LDI strategies were put under extreme strain last week as they were forced to stump up cash for collateral calls, forcing them to scramble to sell off bonds and equities on the cheap to meet the calls.
The Bank of England stepped in with a bond-buying programme to steady the price of gilts and calm the volatility, which L&G said had helped to “alleviate the pressure on our clients”.
L&G said it had not had any trouble in meeting its own collateral calls, however.
“Despite volatile markets, the Group’s annuity portfolio has not experienced any difficulty in meeting collateral calls and we have not been forced sellers of gilts or bonds,” L&G said.
“One of the strengths of the UK insurance regime is that we regularly monitor and stress our capital and liquidity requirements to a 1 in 200 stress level so that we can withstand shocks like we have seen in the past few days.”
L&G boss Sir Nigel Wilson said the balance sheet and liquidity position “remain strong” and its businesses is “highly cash generative”.
“We continue to work closely with our customers to support them through this period of increased market volatility,” he said.
Bosses said the solvency coverage ratio as of 30 September 2022 was between 235-240 per cent, up at least 23 percentage points from the level in its half year results.
The group also said liquidity remains strong with £2.3bn of available cash across the Treasury and the LGC Traded portfolio, in addition to the large amount of cash and gilts held by the annuity portfolio.
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